Buyer's Right to Demand the Rescission of the Contract
Rescission of the contract is an option of last resort when a breach of contract has occurred. The rescission of the contract is possible when the goods are defective and when the delivery is delayed. However, the buyer has a right to rescind the contract only if the breach of contract is of substantial importance to him/her and the seller knew or ought to have known this.
The buyer has to give the seller a notice of rescission within reasonable time after he/she has noticed the delayed delivery or noticed or ought to have noticed the defect. Otherwise the buyer loses his/her right to demand the rescission of contract.If the seller has been gross negligent or has acted contrary to the rule of good faith and honor, the buyer has the right notwithstanding his/her failure to notify of his/her claim.
Rescission is a unilateral legal act. The effect of rescission is that the contract ceases to bind both parties. After the rescission, the parties no longer have any contractual obligations and all performances already done are usually returned. The buyer has to return the delivered goods substantially unchanged and undiminished. In addition the buyer has to account the seller for any yield he/she has derived from the goods as well as pay reasonable compensation for any other benefit he/she may have derived from the goods. Correspondingly the seller has to refund the price and to pay interest on the amount to be refunded in accordance with the Interest Act from the date the seller received the payment.
There are no formality requirements in respect of the notice of rescission, unless otherwise agreed between the parties. The notice to rescind must set out the reason for rescinding the contract, i.e. the breach of contract must be clearly identified. It is of course advisable to make the notice in writing.